Pa. Supreme Court hears mineral rights case affecting Marcellus Shale

PITTSBURGH — Pennsylvania’s Supreme Court heard arguments Tuesday in a natural gas case that could create chaos for major energy companies and thousands of leaseholders. But the questions from the justices suggested they may be reluctant to cause such disruptions by significantly modifying existing law.

The case concerns an 1881 property deed and established Pennsylvania law that defines minerals as only metallic substances such as gold, silver and iron. In the deed, a man named Charles Powers sold property in Susquehanna County but retained the rights to 50 percent of the “minerals and petroleum oils.”

The Powers estate claims that the reference to “minerals” in the old deed gives them part ownership of the natural gas locked in the Marcellus Shale under the property. The estate challenged the natural gas and mineral rights of the property’s current owner. Lower courts disagreed about the issue.

The Marcellus is a formation that lies deep under much of Pennsylvania, West Virginia, New York and Ohio. In 1881 the technology didn’t exist to extract gas from the shale, but recent advances have made that possible.

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The stakes in the case are enormous. In the last four years, the Marcellus Shale has gone from virtually no output to become the most productive natural gas field in the United States. Wholesale revenues from production this year are projected to be in the range of $6 billion to $8 billion, depending on market prices. Landowners get hundreds of millions of dollars in royalty payments out of that total.

If the Supreme Court agrees with the Powers estate, thousands of recent gas drilling leases could be questioned or overturned. But Justice Max Baer noted the 1881 deed could have asked to keep natural gas rights — and it didn’t.

“Why did they include oil, and why did they not include gas?” in the deed, Baer asked.

Lawrence Kelly, an attorney representing the Powers estate, said the natural gas is literally a part of the Marcellus Shale.

“If you own the duck, you own the feathers,” Kelly said.

But Baer noted that natural gas isn’t stationary, and can actually move through rocks and out into the atmosphere.

Gregory Krock, who represents the family that now owns the property, said the case is just about what “ordinary people” meant in the 1881 deed.

“Ordinary people do not use ‘mineral’ in the same sense a geologist does,” Krock said.

The shale gas is extracted using a process called hydraulic fracturing. Large volumes of water, along with sand and hazardous chemicals, are injected deep underground to break rock apart and free the oil and gas.